Court File and Parties

COURT FILE NO.: CV-20-00639531-00CL DATE: 2021-09-01 SUPERIOR COURT OF JUSTICE – ONTARIO (Commercial List)

RE: FSC (ANNEX) LIMITED PARTNERSHIP, Applicant AND: ADI 64 PRINCE ARTHUR L.P., Respondent

BEFORE: Koehnen J.

COUNSEL: Eric S. Block, Shayan Kamalie, Richard Lizius, Amy Chan for the Applicant Young Park, Ronald Davis for the Respondent

HEARD: July 21 and 22, 2021

Endorsement

Addendum: These reasons were first released to the parties on September 1, 2021. The parties asked that they be kept under seal until they had been given the chance to try to complete certain transactions. That time as now expired and the parties have asked that the reasons be unsealed.

[1] This motion addresses the terms of a judicially supervised sale of a limited partnership or its underlying real estate asset. Although the parties have agreed on a number of terms, a number of others remain contentious.

The Parties and the Project

[2] The applicant, FSC (Annex) Limited Partnership, is an affiliate of Forgestone Capital. Forgestone is a Canadian private equity and advisory firm that specializes in real estate. Among other things, it manages a number of funds that invest in real estate projects on behalf of institutional investors. For ease of reference, I will refer to the applicant throughout these reasons as Forgestone.

[3] The respondent, ADI 64 Prince Arthur L.P. is a single-purpose entity affiliated with the ADI Development Group, a real estate developer focusing on the development and construction of condominium projects in the Greater Toronto Area. For ease of reference, I will refer to the respondent as ADI.

[4] Forgestone and ADI are partners in a joint venture that intended to rezone and redevelop 64 Prince Arthur Avenue in Toronto into a luxury condominium with approximately 140 units. They hold their interest in the project through a limited partnership. ADI holds 20% of the equity, Forgestone holds 80%. Their financial obligations are commensurate with their equity interests. Consistent with other projects that ADI has developed, it took a minority position in the project but managed and executed the development in return for a development management fee

[5] After Forgestone and ADI had a falling out, Forgestone exercised the buy/sell provision in the Limited Partnership Agreement (the “LPA”) on December 20, 2019. On January 9, 2020, ADI elected to purchase Forgestone’s interest for $12,733,289 as opposed to selling its own interest to Forgestone for an identical price prorated to ADI’s 20% interest. In agreeing to purchase, ADI also agreed to close the purchase on April 8, 2020.

[6] On March 25, 2020, ADI advised that it would not close on April 8, 2020. In doing so, ADI stated that the “closing would be delayed” due to the “unforeseeable delay caused by” the Covid-19 pandemic.

[7] In response, Forgestone brought an application for specific performance in which ADI took the position it was not obligated to close because it could not obtain financing to close because of the Covid 19 pandemic. In reasons dated August 21, 2020, indexed as FSC (Annex) Limited Partnership v. ADI 64 Prince Arthur L.P., 2020 ONSC 5055 [1], I granted Forgestone’s application and ordered ADI to complete the purchase within 90 days. ADI has failed to do so. After a number of attendances to address the potential remedy for ADI’s failure to close, the parties have agreed that either the Limited Partnership or its underlying real estate asset property should be sold in a judicially supervised sale.

[8] Despite some initial confusion in its factum about whether Forgestone should be entitled to demand a sale of the property, ADI made it clear in closing argument that Forgestone was entitled to have the property sold in order to recover damages in lieu of specific performance.

[9] The parties agree that a broker should be appointed to market and sell the property and that any potential purchaser should be given 30 days to complete due diligence and 60 days to close. The issues on which the parties differ and a summary of my dispositive rulings are as follows:

a. Should the sale be limited to arm’s-length purchasers? No.

b. Issues Surrounding the Floor Amount. The Floor Amount will not include ADI’s capital contribution but will include the development costs Forgestone has paid since April 2020. ADI is not entitled to its claim of $440,000 from Forgestone. Forgestone will be entitled to make a credit bid for the property. If a sale does not meet the Floor Amount, Forgestone will be entitled to have ADI’s interest in the limited partnership transferred to Forgestone.

c. Should the fact and amount of the floor amount be disclosed to potential purchasers? No.

d. What is the proper rate of prejudgment interest? 12%

e. Should the court file and these reasons be sealed? The court file and these reasons will be sealed until the purchase has been completed.

A. Should The Sale Be Limited to Arm’s-Length Purchasers?

[10] Forgestone submits that both it and ADI should be permitted to participate in the purchase process. ADI submits that purchaser should be limited to arm’s-length parties. In support of its position, ADI cites Credit Union Central of Ontario Limited v. Heritage Property Holdings Inc., 2007 ONSC 23338 [2], at para. 14 of which, Justice Cumming stated:

It is apparent that the Mystic golf course has a subjective value to Mr. Berger that is greater than the amount realized through the sale in the open marketplace. However, an arms-length sale through an objectively fair process in the marketplace is the ultimate arbiter as to what is a fair market price.

[11] This simply says that the highest price will be achieved in an open marketplace. I agree. There is no reason that an open marketplace cannot include the two parties with the most knowledge about the property, ADI and Forgestone. Their ability to bid does not exclude or inhibit other purchasers. If anything, it prevents an opportunistic third party from obtaining the property at a fire sale price.

B. Issues Surrounding the Floor Amount

[12] Both parties agree that the sale should be subject to a minimum price below which the property should not be sold to a third party. The parties have referred to this as the “Floor Amount”.

[13] The parties disagree about three inter-related issues concerning the Floor Amount which I will address together: should it include ADI’s capital contribution, should Forgestone be allowed to make a credit bid in the sale process and what should the consequence be if no third party makes a bid or superior to the Floor Amount. In addition, they disagree about whether two types of development costs should be included in the Floor Amount which I will address at the end of this section.

[14] The beginning of the analysis is relatively straightforward. The parties appear to agree that the Floor Amount should include:

a. The $12,733,298 that Forgestone should have received on April 8, 2020 had ADI completed the purchase of Forgestone’s interest as it had elected to do pursuant to the shotgun by sell notice. b. Two mortgages. c. Approximately $347,817.28 in partnership debts d. .$204,083.16 of capitalized interest. e. The broker’s commission.

[15] Forgestone submits that it should be entitled to submit its damages of $12.7 million plus whatever other contested damage amounts I find appropriate as a credit bid in the sales process and that if the sales process does not result in a sale to a third party at or above the Floor Amount, then Forgestone should be able to acquire the property [3] and its third-party debts in exchange for its credit bid and extinguish ADI’s interest in the property. In that situation, the broker’s commission would be calculated based on the Floor Amount.

[16] ADI objects to the extinction of its interest without compensation and submits that the Floor Amount should include its own capital contributions of approximately $3.3 million. If the Floor Amount is not achieved, ADI submits that Forgestone should purchase ADI’s interest by paying ADI its capital contribution of $3.3 million. ADI notes that this is still $1,000,000 less than the price at which Forgestone offered to purchase ADI’s interest under the shotgun notice.

[17] ADI argues, for a variety of reasons, that any result that extinguishes its interest without compensation is unfair, contrary to law and beyond my jurisdiction. I am unable to accept ADI’s position. In my view, the Floor Amount should not include ADI’s capital contributions. If a third party purchaser does not submit a bid equal or superior to the Floor Amount, Forgestone’s proposal that it be allowed to acquire the entire property and extinguish ADI’s interest is both more equitable and consistent with the usual legal outcome in similar situations.

[18] In argument, the parties advanced a variety of more complex justifications for their positions. I do not, however, find it necessary to base my decision on any of those arguments. Instead, I take a far simpler approach based on what would ordinarily happen if a party enforced a money judgment against certain assets.

[19] An order for specific performance was made against ADI. ADI failed to abide by that order. All parties agree that I have jurisdiction to order damages in lieu of specific performance. ADI agrees that Forgestone’s damages are $12,733,298 being the amount that ADI should have paid Forgestone pursuant to the shotgun notice. Forgestone therefore now has, in effect, a money judgment against ADI and the partnership.

[20] As a result, Forgestone has the right to sell the assets of the partnership to enforce on its money judgment. Ordinarily, such a sale would be conducted by the Sheriff. Both parties agree that it is more appropriate to embark on a judicially supervised sale with a commercial real estate broker than to conduct a sale through the Sheriff. The concept, however, remains the same.

[21] If assets are sold to enforce a money judgment, the usual priority of payment would be to pay off secured creditors first, then pay unsecured creditors (like Forgestone) rateably, and then distribute any remaining funds generated on the sale to equity holders like ADI. ADI agreed in oral argument that this was the order of priority of payments generated on any judicial sale.

[22] Forgestone’s proposal in effect mimics that common priority scheme. On the sale of the property, the mortgagees would be paid off first followed by the unsecured claims consisting of Forgestone’s damages and unsecured partnership debts.

[23] If the funds generated by the sale were insufficient to cover the secured and unsecured claims, ADI would recover nothing and its ownership interest in the property would be extinguished. If the funds generated on the sale exceeded the amount of the judgment and any secured or unsecured debts, those excess funds would belong to ADI.

[24] Forgestone’s proposal achieves a similar result. If the property is sold for anything above the Floor Amount, the excess would be paid to ADI. If, however, the Floor Amount is not achieved, ADI would recover nothing and its interest would be extinguished.

[25] The only slight wrinkle to this scenario arises because Forgestone wishes to have the right to make a credit bid in the sales process equal to its damages claim. That should not, however, change anything in the analysis set out above.

[26] While the concept “credit bid” sounds esoteric, there is no magic to it. If we assume for the moment that Forgestone’s damages claim is $12.7 million as ADI agrees, a credit bid is the same as Forgestone participating in the third party sale by offering to pay $12.7 million and assuming the commercial debts of the partnership. In the ordinary course, Forgestone would accomplish that end by transferring $12.7 million to the selling broker to purchase the property. At the end of the day, the selling broker would then pay Forgestone $12.7 million in satisfaction of its judgment. The concept of a credit bid accomplishes the same result without the transfer of funds to the selling broker and the transfer back to Forgestone.

[27] Acceding to Forgestone’s submission also prevents further unfairness to Forgestone. On ADI’s view of things, if the Floor Amount is not achieved there would either be a sale to a third party at a price that fails to pay Forgestone what ADI agrees Forgestone is entitled to, or compels Forgestone to buy out ADI’s interest in the limited partnership. Both are unfair outcomes. Leaving Forgestone with its damages unpaid is inequitable because ADI and the partnership are single purpose entities without other assets against which to enforce Forgestone’s damages. Forgestone would therefore be without a remedy to recover the balance it is owed.

[28] Forcing Forgestone to pay out ADI’s interest in the event the Floor Amount is not met, defeats the fundamental purpose of buy/sell shotgun provisions. Such provisions are intended to allow parties to separate from each other quickly, impose commercial discipline and provide certainty for the parties. ADI’s approach would turn any shotgun provision into a free option for the recipient of the shotgun notice. It could elect to purchase, fail to complete the purchase, wait to see how commercial uncertainties turn out in the market and, if things do not turn out to the benefit of the party in ADI’s position, then force the other party to purchase under the shotgun. Such an outcome provides neither speed, nor discipline, nor certainty.

[29] ADI raises a number of arguments in opposition to this analysis. First, it argues that the shotgun offer that Forgestone drafted established a remedy if ADI failed to close by allowing Forgestone to acquire ADI’s interest at 90% of the price contemplated in the shotgun purchase offer. Although ADI backed away from this position in reply [4] and agreed that the 90% provision gave Forgestone an option but did not impose a limitation, ADI nevertheless raised the issue as a limitation in its factum and during its initial argument, as a result of which I will address it despite the change of position in reply.

[30] ADI points out that section 6 of the shotgun notice provides:

“6. The provisions of Section 10.4[h] [5] of the LPA shall apply if ADI does not tender the full Purchase Price, as same may be adjusted pursuant to paragraph 5 above, at the Closing.

[31] Section 10.4 (h) of the LPA provides:

(h) If the party (hereinafter in this Section 10.4 referred to as the "Purchaser") who is required pursuant to the foregoing to purchase the Units of the other party (hereinafter in this Section 10.4 referred to as the "Seller") does not tender payment in full of the purchase price therefor at the Closing, then the Seller, in addition to any other remedy which it may have under this Agreement, shall have the option exercisable upon written notice to the Purchaser at the Closing or within 30 days thereafter to acquire the Units of the Purchaser upon the terms of the Offer, mutatis mutandis, except that the price shall be ninety per cent (90%) of the price specified, and the Closing of such transaction shall be fifteen (15) days after the date such written notice is given by the Seller. (Emphasis added)

[32] As is clear from the language that I have bolded above, Forgestone’s ability to purchase ADI’s interest at 90% of the price is an option that Forgestone has in addition to any other remedy it may have under the LPA. Nothing in the LPA excludes a claim for damages for breach of contract.

[33] I made similar observations in paragraph 34 of my reasons of August 21, 2020. If Forgestone’s remedy had been limited to acquiring ADI’s interest for 90% of the purchase price, ADI should have appealed the initial decision which awarded specific performance. Specific performance is inconsistent with the limitation on Forgestone’s remedy that ADI now suggests. ADI launched no appeal from my earlier reasons as a result of which the issue is, in any event, res judicata.

[34] To support its claim for recovery of its own capital, ADI points to section 8.6 of the LPA which provides that any distributions of capital to the limited partners shall be made proportionately to the extent of their capital contributions. This, however, misconceives the issue. We are not dealing here with a distribution of capital to limited partners but with the enforcement of an award for damages in lieu of specific performance. That exercise is governed by the ordinary scheme of distribution applicable to funds generated on the enforcement of a judgment, not by Section 8.6 of the LPA.

[35] In a similar vein, ADI points to section 11 (1) of the LPA which provides that a limited partner has a right to a share of the profits and to have its contribution to the limited partnership returned to it. This, ADI submits, gives it an a priori entitlement to the return of capital. I disagree. Section 11 (1) applies to the forced sale of a defaulting partner’s interest to a non-defaulting partner. Such a sale is an option open to a non-defaulting partner in certain circumstances. It is not an option that is relevant here. The relevant analysis here is not what happens on a sale under section 11 of the LPA but what happens on a sale pursuant to the enforcement of a money judgment.

[36] Next, ADI argues that allowing Forgestone to acquire the property does more than compensate Forgestone but amounts to retribution against ADI by depriving ADI of the opportunity to participate in the project. In addition, ADI argues that allowing Forgestone to acquire the property gives Forgestone a windfall because it would allow Forgestone to develop the property on its own and profit from it. ADI argues that Forgestone had an expectation to be made whole through damages, not to develop the property on its own.

[37] To remedy this overcompensation, Forgestone should, according to ADI, either be prevented from bidding on the property or should be forced to share with ADI, any profit from the subsequent development of the property with the precise amount of the sharing to be determined in a subsequent judicial proceeding.

[38] I do not see any risk of retribution, overcompensation or abuse of ADI in allowing Forgestone to participate in the bidding process.

[39] ADI has as much right to participate in the sales process as Forgestone. If ADI submits a bid that is higher than a bid submitted by any other party, it will acquire the property and have the right to develop it on its own. If there is a bid that exceeds the Floor Amount, all Forgestone will be entitled to is a cash payment that puts Forgestone into the position it would have been in had ADI specifically performed as it was required to do.

[40] If ADI perceives any unfairness in an outcome in which Forgestone acquires the property, that is a situation of ADI’s own making. It was ADI who elected to purchase Forgestone’s interest and failed to do so. It was then ADI who failed to abide by a court order to specifically perform its contract to purchase Forgestone’s interest. It was then ADI who failed to participate in the sales process.

[41] To give ADI a right to the profit of any further development in the project is entirely untenable. It would allow ADI to have all of the upside benefit of the development but none of the downside risk. If an owner of a property loses title as a result of a judicial sale to enforce a money judgment, the former owner does not acquire a right to a share of the future profit arising out of whatever the purchaser on the judicial sale does with the property. To afford such rights would make it impossible to conduct judicial sales of any assets which could be resold or developed in some way.

Development Costs

[42] As noted in paragraph 13 above, two issues with respect to development costs separate the parties. ADI asserts that Forgestone owes ADI approximately $440,000 for management fees. Forgestone submits that ADI owes it $605,202.87 on account of carrying costs that Forgestone has paid between April 8, 2020 (the closing date under the shotgun notice) and May 2021. Forgestone says that this amount should be added to the Floor Amount.

[43] ADI asserts that the $440,000 it claims from Forgestone was the result of an oral agreement reached in August 2018 pursuant to which Forgestone agreed that it would pay 100% of management fees until a building permit was issued.

[44] Forgestone contests this alleged agreement. There are conflicting facts in the record before me. In addition, Forgestone submits that the issue is res judicata I agree.

[45] I addressed this issue in paragraphs 12 -14 of my reasons of August 21, 2020. At the time, ADI raised the issue of a claim that it had against Forgestone as a basis for denying specific performance on the grounds that Forgestone did not have clean hands. I rejected that argument as a basis for avoiding the obligation to specifically perform under the buy sell agreement. ADI did not appeal from that finding. If the claim cannot be used to resist specific performance, it cannot be used to resist or decrease a damage award in lieu of specific performance.

[46] With respect to Forgestone’s claim to recover carrying costs of $605,202.87 that it incurred after ADI failed to close the shotgun purchase, ADI agrees that those carrying costs are part of Forgestone’s expectation damages unless Forgestone ends up acquiring the property. If Forgestone acquires the property, ADI says it should not recover the $605,202.87 because those costs were incurred to improve the asset that Forgestone is acquiring.

[47] In my view, Forgestone should be entitled to include the $605,202.87 in the Floor Amount.

[48] My starting point in the analysis is that of expectation damages. Forgestone is entitled to be put into the position that it would have been had ADI completed the purchase in April 2020. In those circumstances, Forgestone would have received payment of $12,733,298 and would have had no further involvement with the project. Instead, Forgestone has been forced to have further involvement with the project and has been forced to incur expenditures of $605,202.87. Forgestone would not have had to incur those additional expenditures had ADI specifically performed as it was required to do.

[49] The fact that those expenses may have improved the quality of the project that Forgestone may ultimately acquire does not provide any justification for excluding them from the Floor Amount. Whatever benefit those expenditures had on the value of the project is a benefit that Forgestone paid for and that any third-party bidders would presumably also be factoring into their bids. It is quite possible though that the third party bidder would not value that contribution on a dollar for dollar basis. By way of example, some of the $605,000 amount at issue funded the LPAT hearing. Those funds were expended to persuade the LPAT to approve the proposed high-rise project of 140 units. The LPAT did not approve the proposed project but indicated that the site was appropriate for a midrise development. Given that the hearing did not lead to the result hoped for, it is unlikely that a bidder would notionally pay the costs of that hearing on a dollar for dollar basis. Forgestone was nevertheless obligated to pay that amount to protect its investment solely because ADI had failed to purchase interest as required. To exclude that amount from the Floor Amount would allow ADI to have a free ride on Forgestone’s back. It could force Forgestone to pay the costs of the hearing but allow ADI to obtain the full benefit of any upside in the hearing but at the same time deprive Forgestone of compensation for those costs even though Forgestone was forced to incur them because of ADI’s failure to close.

[50] Once again, if ADI perceives any unfairness in this result, it was within ADI’s power to avoid that unfairness by closing on the shotgun purchase or by funding the costs itself.

C. Should the Concept of the Floor Be Disclosed to Potential Bidders?

[51] Both parties agree that the amount of the Floor Amount should not be disclosed to potential bidders. ADI, however, submits that the fact of a Floor Amount should be disclosed. Forgestone submits that the existence of a Floor Amount should not be disclosed.

[52] In my view, it would be preferable not to disclose the existence of the Floor Amount.

[53] The object of the sales process is to obtain the highest price possible for the project. In my view, that is best achieved with a sales process that has as few impediments to it as possible. While there is no single right or wrong answer to the question, it strikes me that the less interference there is in the sales process, the better.

[54] Disclosing the existence of a Floor Amount may inhibit certain bidders. One primary objective in a sales process is to attract as much interest in the property as possible. That includes interest from people who may be initially discouraged by the existence of a Floor Amount. Once interest has been created, the thought process of potential bidders evolves. They became aware of positive attributes of the property of which they were not previously aware. That in turn may lead them to a higher bid. The more interest there is in the property, the higher bids are likely to go.

D. What Is the Appropriate Rate of Prejudgment Interest?

[55] Forgestone argues that prejudgment interest on its damages should accrue at the rate of 12%. Forgestone bases its claim on s. 3.13 of the LPA which provides that, if a limited partner fails to make a capital contribution, the other partner may make that contribution for the defaulting partner and charge interest of 12% per year.

[56] ADI argues that the situation here does not involve a contribution of capital by a non-defaulting partner on behalf of a defaulting partner as a result of which section 3.13 of the LPA does not apply. In addition, ADI notes that Forgestone’s shotgun notice did not provide for an interest rate for late payment, as a result of which Forgestone should be limited to the Courts of Justice Act, RSO 1990, c C.43 [6] rate which was 3% when the application was commenced. ADI argues that the objective of prejudgment interest is compensatory and that awarding anything over the statutory rate over compensates Forgestone.

[57] I agree that the overall objective of prejudgment interest is compensatory. That does not, however, mean that is automatically limited to the statutory rate of interest. Indeed, section 130 (2) of the Courts of Justice Act, provide courts with discretion to vary the statutory rate based on, among other things, the circumstances of the case and the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding. Courts have held that judges have wide discretion to order interest at a rate higher or lower than that set by the Courts of Justice Act [7].

[58] In my view, the circumstances of this case and ADI’s conduct are such that the appropriate rate of prejudgment interest should be set at 12%.

[59] In effect, ADI made Forgestone an involuntary creditor. Instead of borrowing money to buy out Forgestone, ADI declined to find financing and chose to pursue the LPAT process using Forgestone’s money but keeping all of the upside benefit for itself.

[60] Even after I ordered ADI to specifically perform within 90 days and ordered ADI to pursue financing with energy, to pursue multiple tracks of financing and to pursue out of the box solutions, ADI did nothing of the sort. It did not pursue financing to purchase Forgestone’s interest but pursued financing in an amount that would not only buy out Forgestone but would also fund the next stages of development.

[61] It was no great surprise that financing might not be available for the next stages of development given that LPAT had not yet approved the proposed development.

[62] Instead, ADI failed to close the purchase and compelled Forgestone to provide ongoing funding or risk losing its entire investment. ADI did so knowing that Forgestone as the 80% equity holder, had much more to lose than ADI did as the 20% equity holder. in addition, ADI knew that it would have no problem finding financing for future development if the LPAT approved the proposed development. ADI was therefore compelling Forgestone to fund development costs so that ADI could close the shotgun purchase if the LPAT approved the development. In other words, ADI was taking all of the upside while forcing Forgestone to bear the cost.

[63] In doing so, ADI essentially made Forgestone an involuntary creditor who would only be paid when ADI’s upside on the project was much more certain than it was when ADI elected to purchase Forgestone’s interest. ADI’s conduct has delayed Forgestone’s right to payment by over 16 months to date.

[64] Both parties are investors/developers. They deploy capital for significantly greater returns than the statutory rate of 3%. ADI has tied up Forgestone’s capital for over 16 months and offers 3% in interest as compensation.

[65] I note that the record before me discloses that ADI was paying interest of approximately 11% on arm’s-length financing that it had obtained. Put another way, acceding to ADI’s position on prejudgment interest would allow it to avoid paying 11% interest on arm’s-length financing by forcing Forgestone to become a de facto lender at 3% interest.

[66] A party should not be able to manipulate the inherent delays in the litigation process and the statutory rate of interest to obtain commercial benefits of that sort.

[67] Among the considerations that courts have looked to when varying the rate of interest under the Courts of Justice Act are interest rates agreed to by the parties. [8] In the foregoing circumstances, the 12% interest rate provided for in section 3.13 of the LPA is, in my view, a reasonable rate of prejudgment interest to apply. Although section 3.13 of the LPA does not, strictly speaking, apply to the failure to pay an amount on closing, the failure to pay on closing is sufficiently similar to the concept of capital contributions so as to make it a reasonable proxy for what the parties considered to be a reasonable rate of interest. I note that the rate of 12% is very close to the 11% that ADI had to pay commercial lenders which strengthens me in my view that 12% is the appropriate rate of prejudgment interest.

E. Should a Sealing Order Be Issued?

[68] Forgestone submits that the materials filed on this motion should be sealed because they address the concept and quantum of a Floor Amount.

[69] In Sherman Estate v. Donovan, 2021 SCC 25 [9], the Supreme Court of Canada held at para. 38 that an applicant for a sealing order must establish that:

(1) court openness poses a serious risk to an important public interest; (2) the order sought is necessary to prevent this serious risk to the identified interest because reasonably alternative measures will not prevent this risk; and, (3) as a matter of proportionality, the benefits of the order outweigh its negative effects.

[70] All three factors are satisfied here.

[71] Having found that it is preferable for the sales process not to disclose the amount or fact of a Floor Amount, it would defeat that finding to have information on those issues readily available in the court file. Promoting the most commercially beneficial sales process possible is in the interest of all parties and in the interest of justice. Those factors satisfy the first two components of the Sherman Estate test. The sealing order here need be only temporary. The file and these reasons can be unsealed once a sale has been completed. Any limitation to the open court concept is therefore only temporary. In those circumstances, a sealing order is proportional and the benefit of obtaining the best possible commercial result for the parties outweighs the negative effects of a temporary limitation on the open court principle.

Costs

[72] The parties have exchanged cost submissions. Forgestone seeks costs of $283,345.19 including disbursements and HST. ADI seeks costs of $60,615.71 in the event that it is successful.

[73] Forgestone has succeeded on all material issues in dispute and is entitled to its costs.

[74] ADI submits that Forgestone’s costs are inflated because they include costs of three motions which were brought but ultimately not argued. ADI says they were brought unnecessarily and are the product of Forgestone’s ever-changing legal position. ADI describes this as a shoot first aim later approach.

[75] I do not entirely agree with ADI’s characterization. The issue of what to do in the face of ADI’s failure to close and its subsequent refusal to obtain financing to pay out Forgestone (as opposed to obtaining financing to pay out Forgestone and fund the next stage of development) were complex.

[76] ADI’s conduct in the face of orders requiring it to take energetic measures to obtain financing, work on multiple tracks and think outside the box, did, in my view, amount to wilful breaches of court orders. Pursuing contempt orders would not, however, have advanced matters. A contempt motion was nevertheless a reasonable step for Forgestone to have taken in the face of ADI’s conduct. As a result of a number of case conferences, the positions of both parties evolved in a struggle to come up with a commercial solution that made sense for both parties.

[77] To its credit, ADI ultimately agreed to a judicially supervised sale of the property. [10] Even then, however, there were a number of issues that separated the parties on which Forgestone was ultimately successful.

[78] While I do not think it is appropriate to deny Forgestone the entirety of the costs of those motions, I do think it is appropriate to discount the cost of those motions. The concept of a judicially supervised sale is not so outlandish as to take enormous amounts of time to arrive at. At the same time, I recognize that the simplicity of a solution is always easier to see with the benefit of hindsight and that it takes time and a process for thinking to evolve. In my view a reduction of $75,000 to Forgestone’s bill of costs is appropriate to take these factors into account. As a result, I award Forgestone costs which I fix at $208,345.19 including disbursements and HST

Disposition

[79] As a result of the foregoing, I order as follows:

(i) The property be listed for sale by Cushman & Wakefield as broker (the “Broker”).

(ii) The Broker shall have the discretion to design a process for the sale of the Property (the “Sale Process”) and to determine the best offer received during the Sale Process. The best offer is an offer that: (a) is on an “as-is-where is” basis; (b) is a cash offer to the vendor that is equal or superior to the Floor Amount defined in subparagraph (iii) below; (c) contains no conditionality as to zoning or any other extraneous elements; (d) contains a deposit of at least 5% of the sale price; and (e) has a due diligence date that is no more than 30 days and a closing date that is no more than 30 days thereafter (the “Best Offer”);

(iii) The Broker will sell the Property for the Best Offer, provided that the Best Offer exceeds the Floor Amount which, as of the date of argument, was comprised of:

(a) The $12,733,298 that Forgestone should have received on April 8, 2020 had ADI completed the purchase of Forgestone’s interest as it had elected to do pursuant to the shotgun by sell notice. (b) $605,202.87 on account of development costs paid by Forgestone since April 20, 2020. (c) Prejudgment interest on the sums referred to in subparagraphs (a) and (b) above at the rate of 12% per year. (d) Mortgages in favour Meridian in the amount of $10,506,000 and in favour of Forgestone in the amount of $4,435,870. (e) Approximately $347,817.28 in partnership debts. (f) $204,083.16 of capitalized interest. (g) The broker’s commission. (h) Any additional accumulated interest on the outstanding mortgages or partnership debts.

(iv) Neither the concept nor the amount of the Floor Amount will be disclosed to the Broker until the conclusion of the Sale Process.

(v) If the Best Offer does not exceed the Floor Amount, Forgestone will have the sole and unfettered discretion to either (a) instruct the Broker to accept the Best Offer; or (b) have ADI transfer its interest in the Partnership to Forgestone in satisfaction of ADI’s Debts.

(vi) If the purchaser who has submitted the Best Offer fails to waive due diligence conditions, and the next Best Offer is below the Floor Amount, Forgestone should have the discretion to either (a) instruct the Broker to enter into negotiations with the Next Best Offer, with the intent of transacting, or (b) have ADI transfer its interest in the Partnership to Forgestone in satisfaction of ADI’s debts;

(vii) In the event that any Best Offer exceeds the Floor Amount, ADI will receive the excess above the Floor Amount;

(viii) ADI and Forgestone will have the right to: (1) Review and comment on the Broker’s plans, methodology, and promotional materials for marketing the Property before the Broker goes to market; (2) Be advised of ongoing negotiations between the Broker and prospective purchasers and to provide comments to the Broker; and (3) Comment on the Best Offer and the next Best Offer and to make submissions to the Broker concerning which offer should be accepted.

(ix) If Forgestone acquires the property/Limited partnership as a result of the sales process, it shall provide replacement guarantees for those that ADI has provided and will provide ADI with an indemnity in respect of any guarantees that it has provided.

(x) If ADI does not pay Forgestone the costs awarded in these reasons, the sum of $208,345.19 shall be added to the floor amount on the sale of the property.

(xi) The court file relating to this motion and these reasons will remain sealed until the sale by the Broker (or the transfer to Forgestone) has been completed.

[80] The motion was argued before me on a somewhat conceptual level. It may well be that those concepts did not translate completely faithfully into the dispositive provisions that I have set out in paragraph 81. I remain seized of this matter to address any further issues arising out of any changes that need to be made to the dispositive provisions in paragraph 81 as well as any further issues relating to the sales process or the completion of the sale.

Koehnen J. Date: 2021-09-01